Issuing clarification contrary to SRO: commerce ministry likely to face problems

The Com-merce Ministry is likely to face problems for issuing a clarification contrary to the Statutory Regulatory Order (SRO) of the Federal Board of Revenue (FBR) on incentives for local motorcycle industry and its new entrants recently approved by the Economic Co-ordination Committee (ECC) of the Cabinet.
Detailed analysis of official documents obtained by Business Recorder show that the Cabinet Division, on the request of the Ministry of Commerce, concurred with its interpretation of the ECC decision on the summary moved by it titled ''protection to motorcycle industry in Pakistan''.
In the latest development in this saga, the Cabinet Division, through an office memorandum of November 30 this year, responded to the MoC letter with a short two liner: "The undersigned is directed to refer to Ministry of Commerce O. M. No 13(4)/2006-RO (TP), dated 23rd November, 2012 on the subject and to confirm that the understanding of Commerce Ministry that "tariff rates approved by the ECC are also available to the new entrants as well as manufacturers".
The ministry sent a letter on November 30 to the FBR, with a copy to the Ministry of Industries, stating that ECC approved the ''New Entrant Policy'' for motorcycles in its meeting dated October 23 this year.
According to documents, letter of November 21 by the Revenue Division, FBR, enquired from MoC, i) what were the implications of the statement "the approved rates will be applicable across the board" ii) "whether the approved rates shall also be applied on the new entrant policy (b) of the summary of October 16, 2012, or otherwise". This is followed by an Office Memorandum by MoC to Cabinet Division of November 23, 2012.
The MoC stated: "Reading ECC decision of October 2, 2012, which approves the "New Entrant Policy" in principle as reproduced at Sr. No II therein, together with ECC decision of October 23, 2012 ie the approved rate will be applicable across the board, the New Entrants Policy stood approved. The duty, however, on CKD kits not manufactured locally would be 10% instead of 5% as originally proposed in this ministry''s summary of September 19, 2012 considered by the ECC of October 2, 2012, would be available to new entrant as well as existing manufacturers."
Through this letter the MoC has conveyed an understanding that ECC in its decision on October 2, 2012 has approved New Entrant Policy for motorcycle industry.
It is interesting that as per ECC decision it is simply stated that "proposed duty structure would apply equally to new entrant and existing manufacturers so as to provide a level playing field to all the manufacturers."
Stakeholders are of the view that MoC is trying to build a case that New Entrant Policy for motorcycles has been approved. Interestingly the copy of minutes of ECC of October 23, 2012 says "during ensuing discussions, the ECC noted that in its previous meeting it has agreed in principle to reduce the tariff gradually. However, the proposal is not in line with that decision and reduction in tariff in one-go has been proposed. It was suggested that ECC may consider reduction in tariff to the average of the existing rate and the proposed rates. However, the rate can be reviewed after one year. It was also stated that there was no need of a committee for receiving and approving requests of new entrants." This para is followed by the decision which is recorded as "The Economic Co-ordination Committee of the Cabinet considered the summary, dated 16th October 2012, submitted by the Ministry of Commerce on "protection to motorcycle industry in Pakistan" and decided to reduce the tariff to the average of the existing rates and proposed rates in the summary subject to review after one year. The approved rates will be applicable across the board.
"In the presence of such clearly worded minutes, it is strange how can there be an ambiguity in what the ECC approved. The case is being built on very flimsy grounds. This seems to be height of frustration and nothing else," commented one of the stakeholders on condition or anonymity.
According to him, the decision of ECC has categorically rejected new entrant policy in its entirety.
He maintained that the Commerce Ministry seems to be under a lot of pressure from certain quarters to help retrieve from the position.
FBR has already uploaded the relevant SRO especially SRO 693 (I)/2006 with new entrant policy as approved by the ECC. The policy uploaded on the FBR site given in SRO 693/2006, covers only cars, trucks and busses etc but leaves out the two-three wheelers. This is actually faithful recording of the amended SRO 1098(I)/2011, dated December 11 last year. These SROs were uploaded on FBR site on November 30, 2012, while Revenue Division, FBR letter for clarification on the issue was written on November 21 this year. This proves that FBR is not satisfied with what it is being dragged into. They have taken a strong position in the face of the MoC letter and pressure from powerful quarters.